Moritz Kraemer is chief economist and head of research at LBBW (Landesbank Baden-Württemberg), Stuttgart, Germany.
Some readers, especially non-Americans, might wonder what the recurring squabbles in Washington over the debt ceiling and government shutdowns mean. That’s understandable. In virtually every country in the world, when the legislature approves a budget that results in net new borrowing of, say, 50 billion euros (US$55.8 billion), the government is thereby authorised to take on that debt to finance the budget.
Not so in the United States. There, the budget and borrowing authorisation are two separate legislative processes. Congress approves the budget in one decision, and in a second it sets a ceiling up to which the administration is entitled to borrow.
Don’t ask me what the point of this convoluted and slightly illogical process is; that’s just the way it is. Before 1917, it was even worse: Congress had to approve every instance of government borrowing separately. Traditionally, raising the debt ceiling has happened quietly. Since World War II, the debt ceiling has been raised over a hundred times, usually without any fuss.